(This updates an item that ran at 1318 GMT, with further details on those affected by the wage hike.)
BUDAPEST -(Dow Jones)- At its first formal meeting, Hungary's newly elected government Friday voted to boost public-service wages by more than 50% and give pensioners a one-off supplemental payment, Prime Minister Peter Medgyessy said.
“On an annual basis, this will cost the budget 350 billion forints ($1=HUF258.40), but for this year it’ll be much less, since many of these measures will go into effect in September,” Medgyessy told a press conference.
Medgyessy wouldn’t specify how far these measures would widen the budget deficit, but said they would be financed via the bond market. He wouldn’t say whether this meant tapping domestic or international markets.
“There's two ways of financing this—we could print money or borrow money. We won’t print money, so there's only one way to go,” Medgyessy said.
The Finance Ministry earlier this week said this year's budget deficit, based on European Union calculation standards, is now expected to reach 5.9% of gross domestic product, and not 4.9% as forecast earlier. The spending approved Friday could further boost that deficit.
The government will increase the wages of more than 600,000 public-service employees by an average 52.5% from Sept. 1, and will give more than 3.3 million pensioners a HUF19,000 one-time supplement from July 1.
The hike will affect most of the country's 783,000 government employees, including education and healthcare workers, but not those civil servants who last year received massive wage increases.
“This government has promised this increase during the election campaign and we’re making good on our promise,” Medgyessy said.
Last year's wage hikes boosted government-sector wages sharply, well above private-sector wages. State employees earned a gross monthly wage of HUF121,110 in the first quarter of 2002 while private-sector workers, who numbered 1.88 million, earned HUF108,203 on average.
The government also voted to abolish the personal income tax on the minimum wage from Sept. 1, Medgyessy said.